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Fund Times: Amazon's Climb a Boon to Legg Mason, TCW

Plus, news on Bill Gross, Vanguard, Fidelity, BlackRock, and more.

Morningstar Analysts, 07/30/2007

A few shops that had put Amazon.com, Inc. AMZN among their marquee stock bets continue to reap great rewards in 2007. Amazon's stock jumped from about $69 per share to nearly $90 on July 25 after it reported strong earnings and revenue growth. The stock has more than tripled in the past 12 months. The biggest beneficiary was TCW Select Equities I TGCEX, which puts 9.5% of assets into the online retailer's stock. But Legg Mason may have the most notable fund family-wide bet on Amazon. Bill Miller's Legg Mason Value Prime LMVTX and Legg Mason Opportunity Prime LMOPX, and Alan Blake's Legg Mason Partners Large Cap Growth SBLGX are the company's top three owners. The Baltimore-based fund family controls more than 10% of outstanding Amazon shares.

Gross Warns that Subprime Is Not an Isolated Crisis
In his August 2007 commentary, PIMCO bond guru Bill Gross asserts the fallout from the subprime lending debacle is widespread. Liquidity in high-yield debt markets has dried up in recent weeks, he wrote. Companies such as Expedia EXPE and private-equity firms have had trouble issuing debt at the interest-rate levels they had wanted, Gross wrote. One possible reason for this, he notes, is investors' concern that rating agencies not only misjudged the risks of subprime mortgage bonds, but also those of other markets. His report is all the more reason for investors to be cautious around bonds these days.

Vanguard's Newest ETF Now Opens for Business
There's a new competitor in the realm of equity ETFs, and it will be a tough one. Vanguard Europe Pacific ETF VEA launched this week. It tracks the MSCI EAFE international stock index and invests in more than 1,100 stocks. The ETF's expense ratio undercuts its ETF and conventional mutual fund competition: It charges only 0.15% annually, barely half the cost of iShares MSCI EAFE Index EFA, one of the largest ETFs.

Fidelity Plans Merger of Two Bond Funds
Fidelity Investments is seeking shareholder approval for the merger of two tax-exempt offerings. The firm plans to merge Fidelity Florida Municipal Income FFLIX into nationally diversified Fidelity Municipal Income FHIGX. Florida repealed the state's intangibles tax last year, effectively negating the tax advantages of all Florida-specific muni offerings. The merger should result in smoother, potentially higher long-term returns due to Municipal Income's diversification across many states. Fund manager Christine Jones Thompson is a Fidelity veteran, and we think Florida shareholders will be in good hands should they approve the merger.

BlackRock Loses Two Muni Team Members, Prompting Manager Shuffle
John Loffredo, BlackRock's muni team leader, and Bob DiMella, lead manager of BlackRock Municipal Insured MDMIX are leaving the firm to pursue other opportunities. Peter Hayes, a longtime team member at BlackRock, replaces Loffredo as leader of the muni group. Mike Kalinoski, previously DiMella's comanager on Municipal Insured, takes the reins of this fund going forward. We don't see reason for shareholder concern here.

ING CEO and Chairman to Retire at Year-End
ING leader Robert Crispin will retire on Dec. 31, with Robert Leary taking over his CEO responsibilities in September before becoming chairman in 2008. Leary previously worked for both AIG and JP Morgan, serving both companies as a manager (and then, at AIG, an executive) in their derivatives and structured products groups.

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